Formula 1 in Mexico: Public resources, private profits

Out of the 213.3 million dollars that the Mexican government committed to pay the entertainment enterprise CIE in order to bring back to Mexico the Formula 1 series, 44.2 million have already been delivered, approximately 575,406,000 Mexican pesos. The public support towards private enterprises will be given without any restrictions, to the point where the Mexican federal government and the city government of the capital have reached a deal to “contribute” in order to ensure these series, according to documents to which Contralinea had access. The federal government will incur more than 3 billion pesos over 5 years as an “expenditure” to promote the brand of Mexico, which will produce ten times the amount invested, for the benefit of the private enterprises involved. According to a specialist, private business is conducted with public funds.

A total amount of 575,406,425 pesos of public funds have been spent by the federal government on this first event in Mexico of the worldwide famous car race, that will be held between the 30th of October and the 1st of November 2015, comments the Council for the touristic promotion of Mexico (CPTM, as per the acronym in Spanish), as a response to the information inquiry nr 2135500013214 presented by Contralinea in accordance with the federal law of transparency and access to the public government information (FLTA).

“Formula 1 will be back after 23 years!” was the unanimous outcry after the announcement of the reconstruction of the Hermanos Rodriguez Racetrack. Regardless of the fact that most of the funding is provided by public funds, the private enterprise Corporación Interamericana de Entretenimiento (CIE, SAB de CV) received several congratulations and praises for having contributed to reach that deal and for being in charge of that event.

According to the contract 36/2014 handed over to Contralinea by the Secretariat of Tourism (folio 2135500000715) in charge of Claudia Ruiz Massieu, a first part of 575.4 million has been transferred to CIE, of the total amount of 213,279,000 dollars promised to the entertainment company associated with Televisa, during the five-year term in which Formula 1 will be held in the country.

Tourism promotion as a pretext to finance Formula 1

Arguing that the event will improve the country’s image projecting its “greatness and wealth” (sic, dixit president Enrique Peña Nieto), the Council for tourism promotion of Mexico will contribute with most of the required funds for the organization of the Formula 1 series.

“Chris Balfe (expert in F1 business) confirms that there have been meetings with Alejandro Soberón, a main figure at CIE, a company that is in charge of the Hermanos Rodriguez Racetrack, the ideal venue for the race, while the problem remains in gathering the necessary funds.

“(…) If Mexico wants to win the Grand Prize it must pay at least 200 million dollars”, wrote Iván Pérez in September 2013 in Forbes Magazine.

A couple of months later, precisely on June 23rd 2014-in the midst of the Football World Cup-, the problem was suddenly solved by the executive wing: through the CPTM it signed a multiannual deal (36/2014) with CIE throughout the time in office of the current government. In it the government committed to pay 213 270 000 dollars for five races. For weeks later the big announcement was finally made public, that Formula 1 races will be back in Mexico.

The first payment was equivalent to 44,177,000 dollars or 575,406,425 pesos, at an exchange rate of the time the contract was signed (according to the documents of the inquiry nr2135500013214).

The money was deposited in less than 10 days, as time was scarce; the reconstruction works at the racetrack had to start immediately, and the first annual fee demanded by Bernard Ecclestone, also known as the supreme or simply Bernie, had to be paid.

Of that first sum delivered by the CPTM, 32 million were deposited directly “in favor of the entity of F1” provided by CIE, the rest being “fully” available, “without any restriction” for the company’s consideration.

A document, of which Contralinea possesses a copy under the virtue of the FLTA (folio 2135500000715), enlists the public funds which the CIE will receive, in advance, by the grace of the government:

40,987,000 dollars for the 2016 race, which will be paid even before the Gran Prix of 2015.

The third capital injection will also be 40,987,000 dollars, this time for the 2017 race.

For the 2018 race, the last under President Enrique Peña Nieto’s administration, the amount will be as much as 43,564,000 dollars.

That same amount (43.5 million) will contribute the Council for its fifth edition, in 2019, of the Mexican car series.

The annual amounts paid by the Council to the CIE will be adjusted to “the exchange rate published in the Federal Official Gazette on the dates of due payment”. In other words, even if the Mexican currency devaluated more in the coming years, the entertainment company would not lose; on the contrary, it would receive more resources on behalf of CPTM.

In addition to the payments, the CPTM commits to annually provide “credit cards” that will ensure the solvency of the Council for conducting the Grand Prix, and above all, the payment due to Bernie Ecclestone. This goes as far as having to provide credit cards issued by banks either based or having a branch in London, UK”, which also appears to be the country of origin of the man controlling this sports category since the 1970s.

For the first three years -2015, 2016 and 2017-, the warranties will be 30 million dollars, for both the 2018 and 2019 edition, it will be 32 million dollars.

“The issuance and availability of each and every credit card (…) will be at the exclusive expense of the Council”, states the contract. These warranties of the public funding eventually convinced the owner of the F1 to come back to Mexico.

For the avoidance of every single doubt, neither Ecclestone nor the CIE, the document insists that “the Council commits itself to also include within its financial planning of the fiscal years subsequent to 2014 the necessary financial resources to ensure the fulfillment of these obligations, and to maintain these credit lines valid, available and in sufficient quantity, in accordance with its obligations”, therefore making it necessary to operate through the Banco Nacional de Comercio Exterior (National Bank of Foreign Trade).

Not only are these figures brokered in relation with the current exchange rate, the deal also opens the doors to extra help, as the CPTM will be able to “agree on increasing the amount of the contract” up to 20%, which could mean additional 42 million dollars.

Officially the “scope” of the direct allocation is providing the “service of promoting Mexico” from 2015 until 2019. More than 213 million dollars will be spent by the federal government to promote the country-brand, a similar amount to the one spent by Sony in order to display their image during international competitions such as the International Federation of Football Association (FIFA) for a decade, including World Cups which outnumber F1 audiences seven times.

Steering the wheel of a brand new van, and with Sergio Pérez, pilot of the Force India Team as a copilot, Enrique Peña Nieto inaugurated the beltway of Coatepec in the state of Veracruz, which turned out to much less than the first race alone: 324 million pesos for 3.5 km of road compared to 575.4 million spent in the first race.

During that time, and despite the signed agreements and dozen million pesos spent from the public purse, in addition to the hundreds of millions to be spent- the figure will exceed 3 billion pesos. Peña Nieto simply stated that the agreement with F1 “was not a commitment formally made (with the federal administration)”.

The size of the winner

“The black Book Report 2013 details how on average, for every dollar invested, there are ten in return, while for every 3 hours of transmission, the income derived from advertising is more than 200 million dollars” writes Ivan Pérez. Of course this “return” will not benefit the public treasury, but the private enterprises –starting with CIE-, that will watch out for the returns of this category.

“There are several recent experiences of cases in our country, where public funds are used to create conditions where some companies, neither small nor middle-sized, grow and obtain tremendous benefits without bringing any benefits to public finances”, stated in an interview Dr. Gregorio Vidal, researcher and professor at the Universidad Autonóma Metropolitana (UAM, Autonomous Metropolitan University).

The capital injection by the federal government and other donors have contributed in a way that races held in Mexico City in the next 5 years shall be a totally viable and economically profitable business”, explains the economist who graduated from the Universidad Nacional Autónoma de México (UNAM, National Autonomous University of Mexico).

According to the Annual Report prepared by the company, before signing the agreement with CPTM, “the share capital, subscribed and fully paid by CIE” “3,398,674,294 pesos”. Between 2014 and 2019 the company will receive a similar amount from the federal government.

CIE was established on August 21st 1995, however its business activities date back to 1990 –in the midst of the administration of president Carlos Salinas, as Manuel Camacho Solís was the Regent of Mexico City-, as a promoter of the Palacio de los Deportes (Palace of Sports) arena. During the government of Ernesto Zedillo, the company crossed the border and consolidated the US ticket selling system Ticketmaster in Mexico. “Currently (April 2013), CIE owns 67% of ticket selling operations in Mexico”.

Among its activities it has had zoos, casinos, theme parks, theaters, talent agencies, show and convention centers, advertising spaces, radio stations…

“CIE considers that it is the leading company in the out-of-home entertainment industry in Mexico, Colombia and Central America and one of the main players of the entertainment industry in Latin America and worldwide” claims the company.

“In 2013-he adds-, approximately 6.4 million persons assisted to 3,752 events that were promoted by CIE and that were produced in the region.” The company is listed in the stock market.

It also “has all the exclusive rights of use and exploitation of the property called Autodrómo Hermanos Rodríguez (Hermanos Rodríguez Racetrack), (…) granted by its subsidiary Operadora de Centros de Espectáculos, SA de CV, (Ocesa) for conducting The fee-charging event (sic), which stem from the temporary revocable administrative license dated September 1st 2011, granted to Ocesa by the city government of the Federal District of Mexico”, specified the government of the Capital. The renewed license under Marcelo Ebrard’s administration, will expire –or will be renewed again- in August 2021.

“As a matter of fact, we are talking about a construction undertaken with private funds. There should have been at least some considerations offered by the company which is gaining benefits from doing business with the construction”, comments Dr. Vidal. Public space is being upgraded with everyone’s money, but the benefits arising from the operation will end up in exclusive accounts.

Furthermore, “CIE doesn’t have any competitors in the sector of international car races in Mexico”, claims the company. Therefore, the federal support to bring back Formula 1 could only go to one option, to Televisa’s partner.

Local and federal governments, allies through CIE

Such was the planning of the official participation that the 25th of March 2014 the government of Peña Nieto signed a “coordination agreement” with the administration of Miguel Ángel Mancera.

Months before the official announcement they had already agreed upon the “common bases and mechanisms in order to get the necessary support from the government of the Federal District of Mexico for the Secretariat of Tourism”. In other words, the leadership “in the required actions to make it possible to run one race every year” goes to the federal administration, meanwhile the complementary or subordinate ones will be in charge of the government of the Federal District.

The representatives of both sides were Octavio Mena Alarcón, principal officer of the Secretariat of Tourism and Horacio de la Vega Flores, general director of the Sports Institute of the Federal District.

The agreement – of which Contralinea possesses a copy under the request for information 0002100046714-, under which the federal executive branch claims that the annual income of Formula 1 is around 2 billion dollars, and that CIE, with a joint capital of 3,400,000 dollars, is a small organization, and therefore needs governmental help. This is what is stated in “administrative records” of the document:

“The Sectoral Program of Tourism 2013-2018 (…) establishes the incentives for touristic investments in micro, small and middle-sized companies”, thus the need, according to Sectur (Secretariat of Tourism), to finance and develop the event.

In order to get this agreement signed, the government of the Federal District refers to its tourism policy, which “contemplates (sic) that a well-planned tourism enables the inclusion and the development of various social agents”, and that “within the lines of actions undertaken by the government of the Federal District” it aims to “carry out more and better sporting events for the enjoyment of the general population”, despite the fact that its average cost for assisting to such a race is 400 dollars.

Both parts are committed to fulfil several tasks that discharge CIE of any responsibility:

The Secretariat of Tourism (Sectur) commits frankly and plainly to “carry out the legal necessary steps in order to comply with the inherent commitments for the celebration of a Formula 1 race, over the next five years”. Consequently, the next government after Peña Nieto will be tied to this agreement.

Regardless of the millions of pesos spent and that the gains will be private, ironically the fifth obligation agreed upon by Sectur literally states that it will “ensure that the interests of both the Federal Government and the Government of the Federal District will be safeguarded at all times”.

On the other hand, the city government is bound to “contribute (…) in granting different licenses, authorizations and permits and any other procedures needed before the authorities of the Federal District –ergo themselves- or towards any other territorial demarcation that would result necessary for the execution of restoration, demolition or construction works, operations or other activities that may be required”.

The document leaves no doubt about the fact that Mancera’s administration has been charged with “fulfilling the complementary works scheduled in the comprehensive restoration project of the Ciudad Deportiva Magdalena Mixihuca (sic) and performing any legal steps for the participation or collaboration of any permit holders or concessionaires in these spaces”.

Contralinea has insisted on speaking with the Secretary of Tourism, Claudia Ruiz Massieu, the Director of the Consejo de Promoción Turística de México (CPTM, Council of Tourism Promotion of Mexico) Rodolfo López Negrete Coppel, the General Director of the Sports Institute of the Federal District Horacio de la Vega, the president of CIE and majority shareholder Alejandro Soberón, and the Director of Administration and Finance of the consortium, Jaime Zevada. After several weeks and up to the edition closing date, no response has been received yet.

Rights of transmission, with regards to Televisa

At the moment of signing the financing contract between the Consejo de Promoción Turística de México (CPTM) and the Corporación Interamericana de Entretenimiento (CIE), the owners of the trademark of Formula 1 had “granted the exclusive right for live transmission to Media Producción SLU (Mediapro)”.

Televisa is an old acquaintance of Mediapro, with whom it has forged an association dating back to 2005. That document refers to the obligation of the Spanish company to “ensure that every race shall be transmitted in an open available TV channel to at least 80% of Mexican households”.

Since 1996 until the 2014 season-except for a short period through PSN- Formula 1 was aired in Latin America exclusively on Fox Sports. Then arrived the former associate of Emilio Azcárraga and obtained these rights for five years, which will be held in the country.

Extension of the racetrack, without a comprehensive plan: Government of the Federal District

The heavy machinery is destroying equally old asphalt, grass and earth. The reconstruction works of the Hermanos Rodríguez Racetrack are being carried out without any comprehensive plan to refurbish the Ciudad Deportiva Magdalena Mixihuca, which is the public space where the track is located, admits the Sports Institute of the Federal District as a response to the request nr 0315000001715, made by Contralinea.

Time is running against the restoration of the track, a necessary upgrade in order to be reclassified by the International Federation of Automobile as suitable to receive once again the Formula 1 race.

A lot has changed since the last time a Gran Prix was held: since the death during a single weekend of the pilots Ayrton Senna and Roland Ratzenberg in San Marino back in 1994, security issues have become a central subject during these events. This didn’t only result in investigations and changes of single-seaters, but also in the design of the tracks, where pilots run at a speed of 300 km/h and above.

Therefore the racetrack of Mexico City was obsolete as it was until now. There was a need of providing further security space in the curves, and to offer more margins for maneuver for competitors of the race in case of leaving the track.

Even in the case of respecting the original route, in order to meet those requirements, it is necessary to extend certain areas of the racetrack, areas which belong to the Ciudad Deportiva Magdalena Mixihuca complex after all. However, the reconstruction in progress remains without any guidelines, which could be more harmful to the sports complex.

“The Sports Institute of the Federal District regarding the guidelines of the area in Ciudad Deportiva “Magdalena Mixihuca”, this information hasn’t been generated, managed nor is it in our possession (…) since there isn’t until now any comprehensive refurbishment plan”(sic), states the entity.

The issue mentioned above doesn’t matter, it isn’t a problem at least for the head of government Miguel Ángel Mancera, who personally celebrated on the 21st of January “the reported progress of approximately 50% of the refurbishing works” of the Hermanos Rodríguez racetrack.

In any case, for the mandatary everything will be fine and on time to fulfill what was promised to the Formula 1 race: “It will be perfectly ready so that Mexico City shall be the World Headquarters once again of this very important race”, he added during the celebration.